Question

In: Accounting

A machine acquired on January 4, 2009, at a cost of $425,000, has an estimated useful...

  1. A machine acquired on January 4, 2009, at a cost of $425,000, has an estimated useful life of nine years and an estimated residual value of $65,000. (10 points)

  1. What was the amount of depreciation for the years 2009, 2010, and 2011, using the straight-line method of depreciation?

  1. What was the book value of the machine on January 1, 2012?  

                       

  1. Assume that the machine was sold on January 9, 2012, for $290,000 journalize the entry to record the sale                                                               

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  1. Assume that the machine had been sold on January 9, for $310,000, journalize the entry to record the sale.

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Solutions

Expert Solution

Annual depreciation = [ cost of machine - scrap value ] / life time of machine in years

Annual depreciation = [ $ 425,000 - $ 65,000] / 9 = $ 40,000

$ 40,000 is the amount of depreciation in 2009, 2010 and 2011 using straight line method of depreciation.

Book value of machine on 1/1/ 2012 = Original cost of machine - Accumulated depreciation from 2009 to 2011

Accumulated depreciation for 2009 to 2011 = $ 40,000 X 3 = $ 120,000

Book value of machine on 1/1/2012 = $ 425,000 - ( $ 40,000 X 3)

Book value of machine on 1/1/2012 = $ 305,000

If machine was sold on 9th January 2012, then for 9 days in 2012 no depreciation to be changed further, because 9 days in a year is so nominal to calculate depreciation.

Journal entry for sale of machine for $ 290,000

Date Name of the accounts and explanation Debit Credit
January 9,2012 Cash $ 290,000
Accumulate depreciation $ 120,000
Loss on sale of machine $ 15,000
Machinery $ 425,000
( Machinery sold at a loss)

If machine with a carrying value of $ 305,000 sold at $ 290,000, then loss on sale of machine is [ $ 305,000 - $ 290,000] = $ 15,000

Journal entry for sale of machine for $ 310,000

Date Name of the accounts and explanation Debit Credit
January 9, 2012 Cash $ 310,000
Accumulated depreciation $ 120,000
Machinery $ 425,000
Gain on sale of machinery $ 5,000
( Machinery sold at a gain)

ekkarill92 answered 2 years ago
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